Worth Bragging About: Better Workers, Not Bigger CEO Pay Packages

June 3, 2014

Leo Gerard

The U.S. Chamber of Commerce threw a little hissy fit last week, stomping its Gucci-shod feet over a new rule requiring corporations to report the difference in pay between their median workers and their CEOs.

As usual, the navel-gazing Chamber got it all wrong. The big business lobby whined and wailed that the regulation likely to take effect later this year was mean-spirited, that its goal was to shame overpaid CEOs.

Those poor, picked-on CEOs! Well, maybe not poor since the average Fortune 500 CEO pocketed a record $10.5 million last year.

The reporting requirement isn’t about CEOs at all. Their morbidly obese pay packages already are disclosed. Instead, the rule is about workers. And investors. Congress figured that investors have the right to know when CEOs are shoving such big hunks of the corporate profit pie into their maws that workers are starved and investors cheated. The point of the law is to change the way that pie is sliced so that workers and investors get their just desserts.

One reason this occurs is the my-dog’s-bigger-than-your-dog pathology of corporate boards. They want to brag that they’ve got the best CEO, and their measure of the man is the size of his pay package.

It’s certainly not based on performance, since boards continue paying CEOs big bucks, even granting them bonuses, when stock prices fall. For example, the board of Alpha Natural Resources, one of the nation’s largest coal companies, gave its CEO a $2 million bonus after stock prices slumped and the government fined the company $27.5 million for polluting.

Unfortunately for workers, corporate boards don’t give them the same consideration. Governing boards don’t measure their corporations against competitors by saying, “My workforce is better than yours because it’s better paid.”

The requirement that corporations determine the pay ratio between CEOs and median workers could change that because a wide ratio could prove costly. In the 1950s through 1970s, the ratio was about 20-to-1. For every dollar the average worker made, the CEO got $20. Now, the AFL-CIO says that figure has skyrocketed to 331-to-1.

In some cases, however, the numbers are even more shocking. The CEOs of Tesla and Oracle, for example, got $78 million pay packages, so the ratios at their companies are more like 1,500-to-1. Exact figures can’t be calculated because the pay of median workers at specific corporations is not yet available.

When corporations disclose that information, some investors might find the discrepancies grotesque. They may figure that governing boards and CEOs who are willing to put such a disproportionate amount of corporate earnings in one person’s pocket might also be willing to stiff investors on dividends. Investors might also figure that workers in such a company are not as productive as they might be if they didn’t feel bilked every day.

Some state and local governments might find the discrepancies make the corporations worthy of similarly disparate treatment. For example, California is considering legislation that would increase the state corporate tax rate for companies with high pay ratios and would decrease the rate for those with low ratios. For lawmakers, the justification for this is that taxpayers often must subsidize corporations with high pay ratios by providing food stamps, Medicaid and welfare to those firms’ underpaid workers.

If corporate boards took the cost of compliance out of CEO pay packages, the price might drop precipitously. And to its credit, the Chamber did admit that 13 surveyed corporations said figuring the ratio would set them back less than $10,000.

Disclosing the pay ratios will interrupt the destructive pattern of corporate boards ignoring the contributions of workers while relentlessly pushing up CEO pay so they can boast “my CEO’s package is bigger than yours.”

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About Leo Gerard

Leo W. Gerard, International President of the United Steelworkers (USW), took office in 2001 after the retirement of former president George Becker.